Financial Education Resources

What Is a Certificate of Deposit (CD)?

Are you looking for a secure way to grow your savings? When determining the best way to save money and earn interest, people often overlook Certificates of Deposits (CDs). With so many savings options out there, is a CD the best option for you?

What Is a CD?

A CD is a special type of savings account offered by banks and other financial institutions. When a depositor purchases a CD, they agree to leave a certain amount of money on deposit at the bank for a specified period of time. In exchange, the bank agrees to pay the depositor a predetermined interest rate and guarantees the repayment of their principal at the end of the term.

CDs vs. Savings Accounts

A CD is different from a traditional savings account in several ways. Here’s a breakdown of the key differences between the two accounts:

• CDs, unlike Savings Accounts, do not give regular access to your money. Though the process for opening a CD begins the same way as a savings account, the key difference is that your initial deposit will most likely be your only deposit. Once open, your money remains in place without the option for withdrawal until the term is met. This is a stark contrast from a savings account which could generate daily transactions.
• CDs typically offer a higher interest rate than a savings account. The rates are higher in exchange for the guarantee that your money will remain in place for the specified term.
• CDs offer fixed rates, while interest rates for savings accounts are subject to change. With guaranteed returns, CDs can be more appealing. Plus, once your rate is locked in, you will continue to reap the benefits of it even if the bank lowers rates for other accounts.

Both CDs and Savings Accounts are low risk investments that are federally insured up to $250,000 per account. 

Why Should You Choose a CD?

If you are trying to decide between a CD or a savings account, it’s important to consider your specific financial goals. If you are saving for a long-term goal, then a CD is right for you. A CD encourages long-term growth and mitigates the temptation to withdraw your money. With a CD, you have the assurance of knowing exactly what you will earn at the end of your term.

CD Maturity

When a CD is nearing maturity, your bank or financial institution will send you a notification. This written correspondence will contain the following information:

• Maturity date of your CD
• The default action if you do nothing (the matured CD could automatically roll over into a new CD or it could be a cash deposit into your account)
• The rate on renewing CDs
• Deadline to change your default action or request a new action

Summary

A CD may be a good option for you if you’re looking to save your money, earn interest, and protect your money from market volatility. To learn more about CDs, visit your local Centennial Bank branch or visit us online at https://www.mycentennial.bank/personal/personal-savings/certificates-of-deposit.html.